Fed hikes interest rates again, raises outlook for more increases in 2018


The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat.

According to CNBC, the Reserve released new data this week showing the GDP forecast rose to almost 3%, up from the previous predictions of 2.7%.

"Economic activity has been rising at a solid rate", the FOMC said in its statement.

The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year.

Read the full report at CNBC.

United States companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year.

Officials now expect four rate rises this year, not three as the balance of policymakers has shifted since March.

However, higher rates would help savers earn more interest on their deposits.

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The increase in the target range of the benchmark federal funds rate to 1.75 percent to 2 percent had been widely expected, but the slightly steeper pace of rate hikes shown in the dot plot spooked some investors.

Updating their quarterly forecasts, officials projected the policy rate at 3.1 per cent at the end of 2019, according to their median estimate - compared with 2.9 per cent seen in March - and 3.4 per cent in 2020, unchanged from the prior forecast. The rate is closely tied to adjustable-rate loans, such as home-equity lines of credit and credit cards.

The US has now added jobs every month for 92 consecutive months and wages, which have stagnated since the recession, have begun to rise moderately. "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly".

Job growth has consistently outperformed in recent years, driving unemployment down to 3.8 percent in May, the lowest reading since 2000.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years. Officials also said that "indicators of longer-term inflation expectations are little changed".

The committee sees further declines the unemployment. Fed officials repeated their assessment that "risks to the economic outlook appear roughly balanced". "Powell seems comfortable exploring the lower reaches of the unemployment rate given few indications it is resulting in stronger inflation pressures".

"In view of realised and expected labour market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 per cent". "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation". More increases are expected this year but the Fed noted "readings on financial and global developments" would factor into its decisions on future increases.